🇨🇳 China's digital currency

Wednesday, April 7, 2021 by Robinhood Snacks | Disclosures

The Rome meeting, brought to you by Zoom meeting

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Hey Snackers,

First there was the TP shortage. Then: baking yeast, tie dye, and dumbbells. Now, pandemic shortages have reached a new level of specificity: ketchup packets.

Markets barely budged yesterday. President Biden said all US adults should be eligible for a Covid vax by April 19 – nearly 1 in 5 Americans have been fully vaxed.

Pay
1. China creates a revolutionary digital currency (and the US is worried)

Leading yuan... China just created its own digital currency: the digital yuan (#digi-yuan). It's the first major world economy to launch an e-currency. China isn't just putting cash into a virtual bank account — it's minting cash digitally, turning legal tender into lines of code. For each digi-yuan it issues, it essentially cancels a paper yuan.

  • State-backed: Unlike a cryptocurrency, digi-yuan is a state-backed currency controlled by China's central bank (like how the US $ is backed by the US gov't and controlled by the Fed).
  • Fully traceable: Unlike crypto and cash, there's no anonymity with digi-yuan. The Chinese government knows where your yuan has been.

More money control... more control. Beijing is testing digi-yuan expiration dates that could encourage people to spend within a certain time frame (to support economic stimulus). China uses hundreds of millions of facial recognition cameras to surveil and fine citizens for things like jaywalking. With digi-yuan, it could automatically draw the fine money from people's accounts.

  • Companies are worried: Digi-yuan transactions settle instantly. That could threaten the fee-reliant business models of payment companies like PayPal, which can profit off transfer times. In China, digi-yuan could crush AliPay and WeChat, which are used by billions to make payments.
  • The US is worried: Digi-yuan threatens the global power of the USD, and could soften the effect of US sanctions (especially on China). That's why the US is considering a digital currency of its own — so are 60+ other countries.
THE TAKEAWAY

Digi-yuan = a threat to the US dollar.... The USD is currently the Superman of global currency. Its stable and reliable rep has made it the world's "reserve currency" for international purchases (think: Canada buying oil from Mexico... in US dollars). The USD is used in 88% of foreign exchange trades — the yuan is used in only 4%. That global currency power makes US sanctions a nightmare for countries and individuals who get frozen out. Now that China is positioning the digi-yuan for international use, that could present an attractive alternative to the USD for sanctioned countries.... And for billions of low-income workers who don't want to pay fees when they transfer money to family abroad.

Peanuts

Forget the hot towel... Flashback to December 2019: the travel industry is booming. Flights are so packed you can barely snag a seat to visit grandma in Rome, Georgia. Flash forward to mid-pandemic: even Rome, Italy has no takers. On April 15 last year, only 90K people passed through TSA checkpoints... 97% fewer than pre-pandemic. Now...

  • Air travel is rebounding: TSA traveler volumes are at pandemic highs, down just 35% from pre-pandemic levels. With the vaccine rollout, that's expected to climb.
  • Business travel isn't: According to Booking's CEO Glenn Fogel, "the share of business travel will be forever lower than pre-pandemic." Mic drop.

Goodbye, in-flight champagne... hello $5 André bottle. After Zooming-from-home for over a year, companies are asking themselves questions like: "Does Carla really need to shake hands with Frida over lobster in Singapore to make the $1M deal happen?" Many are saying "no" —  and that's a big problem for airlines.

  • Business travelers bring in 75% of airline profits, though they make up only ~12% of all passengers. Leisure travelers often pick the cheapest flights (four-hour Dallas layover, why not?).
  • Business travelers go for the most convenient flights, which are generally the priciest. And since it's on the company card, it's no sweat.
THE TAKEAWAY

Investors aren't making pre-pandemic comparisons... Pre-corona, airlines were riding a streak of record profits. In February 2020, Delta was so profitable that it paid out $1.6B in profit-sharing bonuses to employees. Then the pandemic hit, and airlines erased years of gains with their ginormous 2020 losses. Still, Delta and American shares are only down less than 13% from late January 2020 — and Southwest stock is up 13%. Investors are seeing the cabin half-full: they're looking past the pre-pandemic norm, and focusing on the emerging recovery.

What else we’re Snackin’
  • Electrify: GM will make an electric version of its classic Chevy Silverado pickup — it expects it to run 400 miles on a single charge.
  • Zond: Amazon now controls more than 10% of US digital ad market share, inching closer to Google and Facebook.
  • Margin: Swiss bank Credit Suisse took a $4.7B hit from the Archegos hedge fund scandal and is now expecting a quarterly loss.
  • Oh: Facebook said that its recently reported data leak (potentially affecting 530M users) stemmed from a misuse of a feature.
  • League: Topps, the company famous for baseball cards and Bazooka candy, is going public through a SPAC merger at a $1.3B valuation.
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Wednesday

Authors of this Snacks own shares of: Delta, Amazon, and GM

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